More women on boards: “Chicken and egg” questions around performance and sustainability

More women on corporate boards will increase profitability and sustainability, says Aileen Ionescu-Somers

Something highly significant for the future of corporate governance occurred at the end of November 2014. Germany decided to make it obligatory for 30% of non-executive board seats at large publically-listed German companies to be occupied by women from 2016 onwards. How much of a leap is this? To put some perspective on it, in 2012 a review of the Standard and Poor's Composite 1500 Index by Ernst & Young revealed that in 2012, women held only 14% of board seats at companies listed on the index. These recent moves will end the long era of male-dominated supervision of German corporations.

Germany is not the first to take bold moves to tackle the lack of women on boards, but it is the most powerful country yet to join the posse. In Norway, 40% of board directors have been women since 2003. Prompted by European Parliament policy decisions, Germany now joins France, Spain and the Netherlands, which have boosted their proportion of female board directors.

Also at the end of November 2014, a draft law was submitted in Switzerland recommending a quota of 30% of women in both management and board positions at the top listed Swiss companies. If this goes through, governance at companies such as Novartis, UBS and ABB – currently without female board representation – will undergo ground-breaking change in their governance cultures.

What will the impact be on corporate performance, including on sustainability performance? It may well spell good news for bottom lines. According to a 2007 – thus pre-financial crisis – report "The Bottom Line: Corporate Performance and Women's Representation on Boards", Fortune 500 companies with the highest representation of women board directors attained significantly higher financial performance, on average, than those with the lowest representation of women board directors.

However, it may also be good news for sustainability. More recent original research on female board members and corporate sustainability in 2012 indicates that companies with more women on the board are more likely to push for adoption of responsible leadership and sustainable practices. By this we mean strategically integrated practices that include assessing sustainability in financial decisions and capitalizing on sustainable innovation opportunities to improve operational efficiency and even linking sustainability to branding to win new customers by promoting brands as being "cool with purpose".

However, causality is hard to prove. Sceptics will maintain that "chicken and egg" questions can be raised. Do companies that are more financially successful tend to engage more women on their boards? Or does the simple fact of putting more women on boards generate better performance? The latter could be for a variety of reasons such as the longer-term risk adverse way women approach decision-making.

A "chicken and egg" dilemma has always existed around the relationship between sustainable practices and performance: Do companies that are more successful financially tend to also have the best sustainability practices, or do the sustainability practices themselves actually contribute to the better financial performance?

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